Why Louis Navellier sees no more hikes after September … checking in on the yield curve inversion … Louis’ market forecast … when to buy into this market

We’re roughly one month away from a market that’s going to go “up, up, and away.”

So says, legendary investor Louis Navellier.

In yesterday’s Accelerated Profits market update podcast, Louis told subscribers what to expect in the coming months.

He touched on everything from Fed policy… stock market direction… when to buy into this market… even which sectors he’s bullish on today.

There’s lots to cover so let’s jump right in.

Get ready for one more rate hike from the Fed then they’re done for the year

For newer Digest readers, Louis is one of the most respected, veteran quantitative traders in the investment community. For decades, he has used computers and algorithms to help generate one of the most respected and envied track records in our industry.

Returning to Louis’ update from yesterday, he began by focusing on one of the biggest questions investors are wrestling with today…

What will the Fed do with interest rates?

Regular Digest readers know that Louis has been expecting a 75-basis-point increase in September. But then, he says the central bank will be done for the rest of 2022.

Here he is to explain why:

The reason we’re so confident [the Fed will stop raising rates after September] is the yield curve inversion.

Usually, once the yield curve inverts, the Fed will be done [with tightening] within three months.

To make sure we’re all on the same page, a yield curve is a graphical representation of the yields of all currently available bonds – from short-term to long-term.

In normal times, the longer you tie up your money in a bond, the higher the yield you would demand for it. So, you’d expect less yield from a two-year bond and more yield from a 10-year bond.

Given this, in healthy market conditions, we usually see a “lower-left” to “upper-right” yield curve.

But when economic conditions become murky and investors aren’t sure what’s on the way, this can change. Specifically, uncertain economic times tends to flatten the yield curve.

And if the yield curve actually inverts, history has shown that it serves as a highly accurate predictor of recessions, though the timing of those recessions is varied.

The most significant yield curve inversion involves the 10-year Treasury yield and the two-year Treasury yield. This is the big “recession watch” indicator.

This part of the yield curve has been inverted for a month and a half. You see this in the chart below.

We’re looking at the 10-2 Treasury Yield Spread over the last six months. When this spread is negative, that indicates a “10-2” inversion.

After going negative on July 1, this spread has grown deeper. It’s now at -0.39, which is a slight improvement over yesterday’s reading of -0.43%.

The negative spread hasn’t been this wide since March of 2000.

Let’s turn to Forbes for a bit more color on inversions and the situation in which the Fed finds itself:

…As the Fed seems committed to raising rates, there’s a high probability that that the September Fed meeting decision, on September 21 or the lead up to it, could push the curve into inversion at the short-end.

That creates an interesting dynamic for the Fed, as they worry about yield curve inversion too, but at the moment they are expected to raise rates 50bps-75bps next month.

That should fully invert the curve out the 10-year mark unless other factors cause the term structure to change.

The level of inversion currently is around 40bps, which is fairly deep. Some models suggest a higher chance of recession the deeper the inversion goes. 

As Louis points out in his update, the Fed is trying to engineer a soft landing. So, it’s desperate to avoid anything that smacks of a recession, which is exactly what this 10-2 yield spread is suggesting.

Given the fact that we’ve been living with this inversion since July, Louis believes the Fed will back off its tightening after September to try to bring balance back to the yield curve.

But if you’re thinking this inversion has Louis bearish, think again

Louis believes we might run into some near-term turbulence, but it will be short-lived.

Back to his market update:

If there’s anything wrong with the market, it’s “August.” It’s as simple as that.

Earnings are over, the second half of August is lackluster. We might rally going into Labor Day weekend, but then we’ll have some more consolidation.

This market forecast dovetails into Louis’ suggestion for when to put money into the market if you’ve been trying to time your purchase:

I think if you’re looking for a low-point in the market, September 21st is looking like a good time to add money.

That’s because the Fed will have their last rate-increase, and hopefully will say that in their FOMC statement, and then it will be up, up, and away.

To be clear, this “up, up, and away” prediction does not stand for the entire market

As we’ve highlighted in recent Digests, Louis is concerned about recent analyst revisions that are bringing down earnings estimates for some stocks.

Given Louis’ quantitative approach to the markets, he puts a lot of weight on numbers like these.

Here he is, explaining:

By-and-large, analysts are very cautious on their guidance. So, I’m continuing to trim any stock where guidance gets cut a bit.

This is a good reminder to all of us to find out whether the stocks in our own portfolios have been receiving earnings forecast cuts.

If they have, what’s behind it? Is the reason something you’re comfortable riding out, or might it suggest you want to sell that position?

A little preparation today can help prevent some major losses tomorrow.

Finally, what sectors does Louis like today?

Despite recent price pressure on crude, the legendary investor remains highly-bullish on energy stocks.

Back to Louis:

I’m in Europe right now. They’re scrambling to get natural gas. It’s near a 14-year high.

They’re trying to cut off Russia by the end of the year. That’s going to be great for crude oil prices maybe resurging, even though demand usually drops in the fall.

And of course, energy stocks are going to have the best earnings for the next couple of quarters.

By the way, if Goldman Sachs is right, don’t get too accustomed to sub-$100 oil.

From Bloomberg:

Gasoline and oil prices should bounce back through the end of the year as the market still needs to balance rising demand and tight supplies, according to Goldman Sachs Group.

Brent oil futures could go as high as $130 per barrel, with retail gasoline prices in the US surging back to about $5 per gallon, said Damien Courvalin, Goldman’s head of energy research in a Bloomberg Television interview.

These are the levels “at which we need to see sustained prices to eventually solve the market deficit,” Courvalin said. 

Of course, what Louis likes about his top-tier oil recommendations is they don’t need the price of crude to skyrocket again. Even at current prices, they’re still minting profits.

Beyond energy, Louis also likes high-quality fertilizer, food, and shipping stocks.

Before we sign off…

Louis isn’t the only market veteran who sees today as a buying opportunity for certain parts of the market.

Whitney Tilson is another investing legend, having been named “The Prophet” by CNBC.

It turns out, both Whitney and Louis are viewing the markets similarly today. And while there are sectors to avoid for sure, these experts believe you could be staring down an opportunity to make five- to ten-times your money through a massive turning point in the market.

Here’s more from Louis:

In short, we predict this year’s sell-off is about to hit a major turning point that could make you 5 to 10 times your money.

It could cause some of the best-known companies to crash or go bankrupt, while other companies could go on to rise 10,000%.

But you must get in NOW, while the market’s still being shaken-up… at historically low prices you may never see again in your lifetime.

I should note that between Louis and Whitney, they’ve recommended 37 different stocks for gains of 1,000% or more. So, if they’re both seeing the same opportunity, it’s worth paying attention.

Wrapping up, we’ll keep you updated on the Fed, the yield curve inversion, oil prices, and of course, Louis’ market forecasts here in the Digest.

Have a good evening,

Jeff Remsburg